Well well, looks like we’re finally getting a minor correction in the market.

The FTSE’s down 1.5% and the S&P500 4.4%

About time too!

With prices continually creeping higher over the previous two years with little sign of a correction, bargains are getting harder and harder to find.

Saying that, my recent buys have been in for a rough ride regardless, with;

IMB, CARD, and NG faring particularly badly. Between these, I’m down £300 on a £2500 investment, ouch!

I’m not that bothered though, after all, investing is for the long term and I’m confident these companies will bounce right back and are currently trading at cheap valuations, especially CARD.

My goal is always to increase my yearly income through dividend stocks and not to watch the price of my portfolio rise, although that is somewhat comforting too.

This now sits at over £350!

Regardless, one bit of news this week was the lackluster results announced by BT the previous week.

WOW, am I glad I got out when I did!

With BT now at a 52week low, many people have asked whether now is a good time to get into the stock.

If you’re thinking of taking a punt at BT then keep reading.

BT Overview

Over the past decade, BT has transformed more and more into a ‘media’ company as opposed to its traditional fixed-telecoms base.

This has seen the company step into TV, Sport, Mobile whilst investing heavily in a quad-core offering consisting of;


To be fair, BT has been successful in this transformation as the company now looks completely different to how it did just a decade ago. But I remain unconvinced. Here’s why.

Narrow economic moat

Followers of Buffett will be familiar with ‘economic moats’, a term coined by the Oracle of Omaha to describe a company’s continuing and lasting economic advantage.

A wide economic moat denotes a large competitive advantage whilst a narrow economic moat denotes little or no competitive advantage.

Whilst some pundits have argued that BT boasts a medium economic moat with an unrivaled quad-play offering, I think this is unwise.

If we take a look into each of these segments we can see that all are intensely competitive.


Probably the only area where BT continues to enjoy a competitive advantage. BT owns, operates and maintains the telephone lines under its Openreach division and as such BT can continue to enjoy moderate profits in return for its expertise in the area and continued investment through high levels of Capital Expenditure.

But, with the government seems determined to force a spin-off between BT and Openreach buying the stock purely for this competitive advantage would be unwise.


Well, it’s safe to say that EE has no unique offering compared to Three, O2 and Vodafone. Just like airlines, you can offer the best service or best signal in the world but consumers are increasingly focused on price and price alone making charging a premium to increase margins virtually impossible.


Let’s face it. Even traditional TV companies are taking a pounding in the face fierce competition from Netflix and Amazon.

I really think BT made a mistake stepping into this insanely competitive field where they must pay BILLIONS to secure football rights against companies with much deeper pockets (and much smaller pension deficits). Is it really wise to have to add TV rights to a Capex list already containing broadband lines and a black-hole of a pension deficit?

Quick answer: No.


Again, fiercely competitive where BT is straddled with the need for huge Capex to upgrade and maintain the lines but are then expected to compete for customers against the likes of Talk Talk, Origin and more.

Another race to the bottom on price!

Capex, Capex, Debt

Whilst BT rightly boasts it £68m increase in capital expenditure in their Q3 results reflecting their ‘ongoing investment in fiber broadband speed and coverage’ the sad fact of the matter is that BT can’t leverage this large investment in infrastructure to any meaningful competitive advantage due to government regulation.

Most worryingly is that BT is loaded with debt.

£21bn to be exact with we include the dizzying black hole of a pension deficit which stands at £14bn.

Taking a look at BT’s Free Cash Flow forecasts we can see that pressure isn’t going to ease up anytime soon.

(1st grid = Q3 17/18 – 2nd grid = FY 17/18 Estimate)

A full year FCF estimate of £863m leaves BT’s £1.4bn+ dividend payments uncovered.


Many pundits note that BT is looking undervalued at this point with Morningstar releasing this summary of analyst expectations: http://www.morningstar.co.uk/uk/news/164881/bt-still-undervalued-say-analysts.aspx.

But, with no economic moat, it really isn’t a company that I’d be comfortable having in my portfolio having made the mistake of buying it in my newbie investing days.

FrugalStudent Opinion: Hold with the view to sell at a more reasonable p/e.